Wednesday, 23 June 2010

The first coalition budget

In the bad old days of Brown’s budgets, and to a lesser extent Darling’s, it was a mistake to comment too soon because the problems were always hidden in the small print released afterwards. George Osborne has admirably been straight with his presentation so it is easy to see the impact quickly.

The headline comments have been about the increase in VAT to 20%; the headline criticisms that this and the cutbacks will damage the economic recovery and impact poorer people more.

I think there are more points of underlying importance than this:- The budget has started to get to grips with our budget deficit. As I said earlier, it is so big that interest costs are a major outflow from the economy – and a growing part of the deficit. Early action matters, and the quick next day assessment of the budget by the gilt market was good; the UK’s funding costs have reduced slightly.

- Some of the apparently softer cuts will have a big impact on the deficit: a two year restriction on public sector pay increases –with none for employees earning over £21,000 – and increasing benefits by the CPI rather than RPI will save a lot of money quickly.

- The budget sets a positive direction for businesses in terms of tax reduction and simplification. The most important way we will get out of the current mess is for the private sector to grow. Lower and simpler taxes help confidence. This is the first budget for years to have an approach of freeing the private sector rather than tinkering with it.

I think the criticisms are overstated. The VAT rate will not increase until January 2011, which gives time for the confidence boosting measures to work; it is also likely to bring forward spending to benefit the economy in 2010. Less wealthy people tend to spend a greater proportion of their income on non-vatable goods, and so it is less regressive than you might think. In addition, there are specific measures (tax thresholds; housing benefits) targeted at the poor.

I think the main criticism is that the details of the tax cuts are still to come, in the Autumn expenditure review. This delay is inevitable but still permits uncertainty till then.

Overall, it is refreshing to have a budget that is transparent, focused on sorting out the problems and giving an optimistic direction for private sector growth.

About Me

I stood as the Conservative candidate for Lib Dem held Bamburgh Division in the Northumberland County Council elections in 2008. And have stayed involved in the local Conservatives - who for the first time in years had a chance of winning the Berwick upon Tweed seat. We turned it from a safe Lib Dem seat to a marginal, thanks to hard work by the candidate whose election blog is http://trevelyantalks.blogspot.com/ . I'm now having another go at the County Council in the 2013 election.

After the 2010 election I will keep occasionally blogging, mainly on political and economic issues.

I was born in Yorkshire, and lived all my working life in Central London. But coming to live in Seahouses a few years ago felt like coming home: I've always come on holiday here, as did my parents, who came from Newcastle and Tynemouth. And their families came from round here originally. I'm an accountant who worked mostly in general management in the City. I'm now semi-retired, although still do a couple of things 3 or 4 days a month.